[FAQ] Amounts refunded to employers

[FAQ] Amounts refunded to employers

• 28 September 2020
• Individuals Tax
• The Payroll Authors Group of South Africa

Background

A taxpayer was paid a bonus of R525 000. He signed a contract stating that he must meet certain requirements over the next year in order to keep this bonus. He did not meet the requirements and had to pay the full bonus back to his employer. The bonus was taxed on the payroll and is reflected on his IRP5. He received the net amount after tax (R525 000 less the tax). He paid back the amount to his employer gross of tax (R525 000 in full). However, his IRP 5 does not reflect the re-payment. 

How would the taxpayer process this on his tax return, to get the full amount of tax back? 

Answer

SARS has published a draft Interpretation note with regards to amounts to be refunded to employers (see attached).

A deduction of this amount refunded to the employer by the employee must be treated as a Section 11(nA) deduction in the tax year when the amount is refunded to the employer and not in the year when it was paid by the employer to the employee (e.g. when the expense is incurred).

In order to claim the refunded amount, the employer must provide the employee with a letter on its letterhead stating the amount refunded to the employer and when the amount was paid and the reasons for the obligation to refund the employer (e.g. non-compliance to a certain criteria, etc.).

The amount should then be completed on the individual income tax return (other deductions). Please refer to the ITR12 Comprehensive Guide, for details on where the amount should be completed.

Webinar Commentary

Further webinar commentary on Specific and Prohibited Deductions can be accessed here.

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